An Overview of Michigan State Taxes
For many tax filers, figuring out taxes and how much they owe is confusing and overwhelming. Without a solid concept of tax rates and regulations, you may also be susceptible to the latest dangerous tax scams.
In one common scam, impersonator websites mimic the Internal Revenue Service (IRS) and contact unsuspecting victims to demand tax money, stating they didn’t pay enough or their payment is late. In another scam, a con artist poses as a tax preparer and takes money from a client who thinks it’s owed to the IRS. The fake tax preparer never files taxes for the client, takes the tax payment, then disappears.
To avoid these tax scams and ensure you’re following IRS guidelines, it’s important to stay well-informed on the latest tax laws. Whether you recently moved to Michigan or had a life change that may affect the taxes you owe, this guide can help you better understand your tax obligations and how to file your tax return.
Table of Contents
Michigan State Income Tax
You owe a federal income tax on the money you earn throughout the year. In Michigan, there’s also a state income tax you must pay as a resident when you earn an income. Michigan sets a flat tax rate of 4.25% on the income you earn as an employee in the state.
Tax Credits & Exemptions
The 2019 maximum personal exemption tax amount for Michigan tax filers is $4,400. This is the amount a taxpayer is entitled to claim as a taxable deduction when calculating taxable income.
You may qualify for additional credit or exemption programs, including the following:
- Homestead Property Tax Credit: If you’re a Michigan homeowner or renter and meet certain program qualifications, you may receive a credit on your taxes by filing Form MI-1040CR. Your credit amount is based on your property taxes and household resources.
- Home Heating Credit: If you own or rent in Michigan and earn an income below a certain threshold, you may qualify for the Home Heating Credit. You must complete Form MI-1040CR-7 to see if you qualify and to calculate the credit you’re eligible to receive.
City Income Tax Rates
In addition to the state income tax, there are certain cities in Michigan that impose an additional income tax on residents and non-residents. It’s important to review these cities so you can better understand the income tax you owe when you earn money.
For example, Detroit residents owe an additional 2.4% income tax and non-residents owe 1.2%. In Saginaw, residents must pay an additional 1.5% income tax while non-residents are responsible for an additional .75%.
Michigan Sales Tax
Michigan retailers are required to charge a 6% sales tax on all eligible goods sold within the state. Residential electricity, natural gas, artificial gas, and home heating fuels must include a 4% sales tax.
In addition to this sales tax, businesses are required to charge a 6% use tax on taxable items that are brought into Michigan from out-of-state retailers that aren’t required to charge the state sales tax. The use tax applies to the total price of the taxable items, including shipping and handling.
As a consumer, if you’re authorized by the Treasury and have a “direct pay permit” on the purchase you make, you can request to pay sales and use tax to the state of Michigan directly. You must prove your status to the retailer by providing Form 3372.
Michigan Property Taxes
Michigan is known as a state with high property taxes. If you own property in the state, the property taxes you owe are calculated locally instead of at the state level.
You must file a personal property statement (Form 632) by December 31 with the local municipality or township assessor where the property you own is located. A property assessor visits your property to determine its value. The amount of property tax you owe is calculated using the property value and the current tax rate in your location.
Local Property Tax Rates
Local property tax rates are calculated using millage rates. A mill is $1 per $1,000 of the assessed value of the property. Different counties and cities have different millage rates, which also determine their property tax rates. These millage rates vary depending on the school district the property is located in.
For example, the total millage rate in 2018 for a principal residential property in Detroit was 67.6227 in the Detroit City School District. In Warren, the millage rate was 28.0290 in the Warren Community School District. In the Utica Community School District in Sterling Heights, the millage rate was 37.3719 but it was 44.5597 in the Warren Consolidated School District.
Since millage rates vary by city, county, and school district, it’s important to contact your local property assessor to ensure you’re paying the correct amount in property taxes.
Property Tax Exemptions
- Principal Residence Exemption: If your home is your principal residence, you may not be required to pay a portion of your property taxes.
- Neighborhood Enterprise Zone Act (NEZ): If your property is located in an eligible “distressed” community, you may qualify for a property tax exemption.
- Supportive Housing Exemption: If your property is used as supportive housing through a nonprofit organization, you may not be required to pay the tax levied by the local school district included in property taxes.
- Qualified Forest Program: If your property includes forest land and you maintain it to the standards set by the Department of Agriculture and Rural Development, you may be exempt from paying the local school district millage rate.
Michigan Estate Taxes
An estate tax is a tax that some states collect on the value of an individual’s estate after they die. Some states also tax inheritance. Michigan has been phasing out the inheritance tax since 2001, when legislation was passed to overturn the tax laws created in 1899. While they technically still exist in the state, Michigan does not collect inheritance or estate taxes.
Tips for Filing Taxes in Michigan
Federal tax returns are generally due each year on April 15. However, local property and income taxes in Michigan may have their own due dates. It’s important to review these dates, exemptions you may qualify for, and which taxes apply to your situation before filing. Refer to these helpful resources when preparing your taxes:
- Individual Income Tax Forms: Browse through forms you may need to file and due dates for individual filing.
- Michigan Individual Income Tax E-File: File your individual income taxes online using the Michigan Department of Treasury website.
- Tax Preparer Tips: Learn how to choose a trustworthy tax preparer who can help you file correctly.
If you live in Michigan, it’s important to be aware of the local taxes you owe and when you must file. By reviewing your tax liabilities, analyzing potential exemptions, and learning about due dates, you’ll calculate your state taxes correctly and file on time.
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This post was updated January 23, 2020. It was originally published January 23, 2020.